(ii)for the life insurance company’s share of the dividends (other than 100 percent dividends) received.

(B) Application of section
246(b)

In applying section
246(b) (relating to limitation on aggregate amount of deductions for dividends received) for purposes of subparagraph (A), the limit on the aggregate amount of the deductions allowed by sections
243(a)(1),
244(a), and
245 shall be the percentage determined under section 246(b)(3) of the life insurance company taxable income (and such limitation shall be applied as provided in section
246(b)(3)), computed without regard to—

(iv)any capital loss carryback to the taxable year under section
1212(a)(1),

but such limit shall not apply for any taxable year for which there is a loss from operations.

(C) 100 percent dividend

For purposes of subparagraph (A)—

(i)In general
Except as provided in clause (ii), the term “100 percent dividend” means any dividend if the percentage used for purposes of determining the deduction allowable under section
243,
244, or
245(b) is 100 percent.

(ii)Treatment of dividends from noninsurance companies
The term “100 percent dividend” does not include any distribution by a corporation which is not an insurance company to the extent such distribution is out of tax-exempt interest, or out of the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section
264(f) applies, or out of dividends which are not 100 percent dividends (determined with the application of this clause as if it applies to distributions by all corporations including insurance companies).

(D) Special rules for certain dividends from insurance companies

(i)In general
In the case of any 100 percent dividend paid to any life insurance company out of the earnings and profits for any taxable year beginning after December 31, 1983, of another life insurance company if—

(II)the receiving company’s share determined under section
812 for its taxable year in which the dividend is received or accrued,

the deduction allowed under section
243,
244, or
245(b) (as the case may be) shall be reduced as provided in clause (ii).

(ii)Amount of reduction
The reduction under this clause for a dividend is an amount equal to—

(I)the portion of such dividend attributable to prorated amounts, multiplied by

(II)the percentage obtained by subtracting the share described in subclause (II) of clause (i) from the share described in subclause (I) of such clause.

(iii)Prorated amounts
For purposes of this subparagraph, the term “prorated amounts” means tax-exempt interest, the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section
264(f) applies, and dividends other than 100 percent dividends.

(iv)Portion of dividend attributable to prorated amounts
For purposes of this subparagraph, in determining the portion of any dividend attributable to prorated amounts—

(I)any dividend by the paying corporation shall be treated as paid first out of earnings and profits for taxable years beginning after December 31, 1983, attributable to prorated amounts (to the extent thereof), and

(II)by determining the portion of earnings and profits so attributable without any reduction for the tax imposed by this chapter.

(v)Subparagraph to apply to dividends from other insurance companies
Rules similar to the rules of this subsection shall apply in the case of 100 percent dividends paid by an insurance company which is not a life insurance company.

(E) Certain dividends received by foreign corporations

Subparagraph (A)(i) (and not subparagraph (A)(ii)) shall apply to any dividend received by a foreign corporation from a domestic corporation which would be a 100 percent dividend if section
1504(b)(3) did not apply for purposes of applying section
243(b)(2).

(F) Increase in policy cash values

For purposes of subparagraphs (C) and (D)—

(i)In general
The increase in the policy cash value for any taxable year with respect to policy or contract is the amount of the increase in the adjusted cash value during such taxable year determined without regard to—

(I)gross premiums paid during such taxable year, and

(II)distributions (other than amounts includible in the policyholder’s gross income) during such taxable year to which section
72(e) applies.

(ii)Adjusted cash value
For purposes of clause (i), the term “adjusted cash value” means the cash surrender value of the policy or contract increased by the sum of—

(I)commissions payable with respect to such policy or contract for the taxable year, and

(II)asset management fees, surrender charges, mortality and expense charges, and any other fees or charges specified in regulations prescribed by the Secretary which are imposed (or which would be imposed were the policy or contract canceled) with respect to such policy or contract for the taxable year.

1997—Subsec. (a)(4)(C)(ii). Pub. L. 105–34, § 1084(b)(1)(A), inserted “, or out of the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section
264(f) applies,” after “tax-exempt interest”.

Subsec. (a)(4)(D)(iii). Pub. L. 105–34, § 1084(b)(1)(B), substituted “, the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section
264(f) applies, and” for “and”.

1987—Subsec. (a)(4)(B). Pub. L. 100–203substituted “shall be the percentage determined under section 246(b)(3) of the life insurance company taxable income (and such limitation shall be applied as provided in section
246(b)(3))” for “shall be 80 percent of the life insurance company taxable income”.

Subsec. (a)(4)(B)(i). Pub. L. 99–514, § 1011(b)(4), struck out “the special life insurance company deduction and” before “the small life”.

Subsec. (a)(4)(C) to (E). Pub. L. 99–514, § 1821(p), added subpars. (C) and (D), redesignated former subpar. (D) as (E), and struck out former subpar. (C) which read as follows: “For purposes of subparagraph (A), the term ‘100 percent dividend’ means any dividend if the percentage used for purposes of determining the deduction allowable under section
243 or
244 is 100 percent. Such term does not include any dividend to the extent it is a distribution out of tax-exempt interest or out of dividends which are not 100 percent dividends (determined with the application of this sentence).”

Subsec. (b)(2)(A)(iii). Pub. L. 99–514, § 1011(b)(4), which directed that subsec. (b)(3)(A)(iii) be amended by striking out “the special life insurance company deduction and” before “the small life”, was executed to subsec. (b)(2)(A)(iii) to reflect the probable intent of Congress and the redesignation of subsec. (b)(3) as (b)(2) by Pub. L. 99–514, § 805(c)(6).

Amendment by Pub. L. 105–34applicable to contracts issued after June 8, 1997, in taxable years ending after such date, with special provisions relating to changes in contracts to be treated as new contracts, see section 1084(d) ofPub. L. 105–34, set out as a note under section
101 of this title.

Effective Date of 1996 Amendment

Amendment by Pub. L. 104–188effective, except as otherwise expressly provided, as if included in the provision of the Revenue Reconciliation Act of 1990, Pub. L. 101–508, title XI, to which such amendment relates, see section 1702(i) ofPub. L. 104–188, set out as a note under section
38 of this title.

Effective Date of 1987 Amendment

Amendment by Pub. L. 100–203applicable to taxable years beginning after Dec. 31, 1987, see section 10221(e)(2) ofPub. L. 100–203, as amended, set out as a note under section
243 of this title.

Effective Date of 1986 Amendment

Amendment by section 611(a)(5) ofPub. L. 99–514applicable to dividends received or accrued after Dec. 31, 1986, in taxable years ending after such date, see section 611(b)(1) ofPub. L. 99–514, set out as a note under section
246 of this title.

Amendment by section 805(c)(6) ofPub. L. 99–514applicable to taxable years beginning after Dec. 31, 1986, with certain changes required in method of accounting, see section 805(d) ofPub. L. 99–514, set out as a note under section
166 of this title.

Amendment by section 1011(b)(4) ofPub. L. 99–514applicable to taxable years beginning after Dec. 31, 1986, see section 1011(c)(1) ofPub. L. 99–514, set out as a note under section
453B of this title.

Amendment by section 1821(p) ofPub. L. 99–514effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 ofPub. L. 99–514, set out as a note under section
48 of this title.

Effective Date

Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 ofPub. L. 98–369, set out as a note under section
801 of this title.

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and
1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 ofPub. L. 99–514, as amended, set out as a note under section
401 of this title.

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